Co-operation, Not Proliferation, Key to B.C.’s LNG Projects, Analysts Say

22 Nov

By Dave Cooper, Edmonton Journal, November 13, 2012

Co-operation, not proliferation, key to B.C.’s LNG projects, analysts say
An artist’s rendering of the Kitimat LNG liquefied natural gas export facility.
Photograph by: Courtesy of Apache Canada Ltd. , Handout


EDMONTON – With more than half a dozen Liquid Natural Gas (LNG) export projects planned for the British Columbia coast, a new report suggests promoters will have to collaborate in order to facilitate the development of a large project before 2019.

“There are quite a handful of projects that have some good things and some weaknesses and they are almost contrasting each other,” said Asish Mohanty, senior gas analyst for Wood Mackenzie, a global consulting and research firm. “Some projects like Kitimat LNG and BC LNG have their strengths in local stakeholder support and with most of their regulatory approvals in place. They are much further ahead than others such as Petronas/Progress, BG/Spectra and the Shell-led Canada LNG consortium,” he said.

Kitimat LNG is owned by the gas-producing consortium of Encana, EOG and Apache Corp., while BC LNG is owned by the Haisla First Nation.

However, Mohanty said the large LNG buyers in Asia “see a venture comprised of upstream independents who are not perceived as having the necessary LNG experience to carry such a project forward.”

Building a large LNG project from scratch in a remote area just adds to the risk from the buyers’ perspective, he added.

“Things can be delayed, as has happened in Australia, and that is with experienced operators in place,” Mohanty said from Houston.

The “level of comfort” sought by Asian LNG buyers, which they get by dealing with firms that have LNG experience, can be found in the three large projects. All of which include a major customer and experienced operators with their own supplies from other regions of the world.

“If something goes wrong or is delayed, they can supply the LNG from their own portfolio. When an Asian buyer puts pen to paper, they are very keen that they have plugged all the holes. They are risk averse and don’t want to be having a no-show,” said Mohanty.

There is also the issue of an 800-kilometre, multi-billion dollar pipeline that will be needed to transport the natural gas from areas of northeastern B.C.

Apache spokesman Paul Wyke said Kitimat LNG partners have no plans for collaboration.

“Kitimat LNG project continues to move forward at this time with its existing partners,” he said. “The Kitimat partners continue to work on meeting key milestones, such as completing the front-end engineering and design studies and securing long-term gas sales contracts. We will be proceeding to a final investment decision once our key milestones are met.”

With the exception of the small Haisla project (which will export .25 billion cubic feet per day) Wood Mackenzie is estimating the large B.C. projects (all above 1.4 bcf/day, or five million tonnes per year) will not be able to export before 2019 — and that is only if they agree quickly to co-operate.

“Just a greenfield liquefaction project is going to take five or six years. If these project come together now, and say I have a pipeline and you have customers so let’s team up, we think things will fall into place,” said Mohanty. “But if these things don’t happen and these firms stay with their own proposals and try and work things out, it is going to take more time. And there will be more competition.”

While the initial Australian LNG projects have been slow and expensive to build, their gas will hit the market starting in 2018, at about the same time as new U.S. exports arrive as some of America’s glut of gas is liquefied for export.

The main competition for B.C. — if it delays too long — will be from brownfield expansions already being planned in Australia and the incredible gas deposits of Mozambique and East Africa.

“It is not going to be bleak for Canadian LNG after 2019, it’s just that there will be more competition. But demand will still be growing,” said Mohanty.

Wood Mackenzie concludes that a “well-managed Canadian LNG export development could deliver gas to Asia in the $10 to $12/mmbtu (million BTU) range that would be competitive.” Current LNG prices in Asia range between $14.5 and $17.9/mmbtu.

Republished from the Edmonon Journal:

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